5 Chicago Banks: How Our Picks Fared

NEW YORK ( TheStreet) -- Our Chicago bank picks from last year have, for the most part, performed poorly in 2011, reflecting the sluggish lending environment in the Windy City.

In November of 2010 when we highlighted 5 Chicago Banks Poised for Long Term Growth, we hedged by saying the names were "only attractive when we go out to 2012 and are best considered by long-term investors with horizons of several years."

It's a good thing too, because four out of five picks saw significant declines this year. Then again, four out of the five beat the year-to-date performance of the KBW Bank Index ( I:BKX), which was down 26% year-to-date, through Wednesday's close at 38.88.

Back in November of 2010, we selected five Chicago banking names for investors looking for long-term growth amid an economic recovery in the Midwest, with the help of John Rodis, an analyst who at that time was working for Howe Barnes Hoeffer & Arnett, and now covers Midwest banks for FIG Partners.

One year later, Rodis says that like most markets, Chicago "is still looking for a bottom" for housing prices, but "we're maybe in the worst case down another 5% to 10%."

"On the commercial side," according to the analyst, "we're seeing signs of stabilization, closer into the city," with a "definite movement of distressed assets. Bank are seeing bids, and the bids seem to be more realistic than they were a year ago."

Rodis adds that "the banks in most cases have taken their losses through reserve provisioning, so that should bode well going forward.

While all five names remain cheaply priced to tangible book value -- with two trading below book -- four of the five trade for 12 times forward earnings estimates or higher, which seems expensive in the current environment for bank stocks especially when compared with familiar names like JPMorgan Chase ( JPM), which traded for less than seven times the consensus 2012 earnings estimate of $4.87, among analysts polled by FactSet, when the shares closed Wednesday at 32.65.

Here's the same list of 5 Chicago banks that we looked at a year ago, in the same order:

The company owes $104.8 million in federal bailout funds received in November 2008, through the Troubled Assets Relief Program, or TARP.

On Dec. 19, the company announced the successful completion of a rights offering, raising $35 million in common equity, with rights holders paying $7.91 a share.

After the company's announcement, KBW analyst Christopher McGratty reiterated his "Underperform" rating for Taylor Capital, with a price target of $6.50, saying that although he viewed the rights offering "favorably as it was fully subscribed and improves the company's capital position," he continued to believe that another capital raise was possible for the company, "to bring its ratios more in-line with peers and to support future growth opportunities."

FIG Partners analyst Brian Martin has the opposite view of Taylor Capital, reiterating his "Outperform" rating on the shares, with a $10 price target, in late October, after the rights offering had been announced, and after the company reported third-quarter net income available to common shareholders of $7.3 million, or 35 cents a share.

Looking ahead Martin said he expected "sustained profitability for the foreseeable future as TAYC is fundamentally stronger on all fronts than a year ago. The analyst estimates that Taylor Capital will earn $2.87 a share in 2012, driven by a deferred tax allowance valuation recovery of roughly $79 million, or $2.65 a share. Martin expects the company to eventually achieve "normalized" annual earnings of a dollar a share.

The shares trade for 1.3 times their Sept. 30 tangible book value of $7.37, and for six times the consensus 2012 earnings estimate of $1.58 a share, among analysts polled by FactSet.

The three analysts covering Taylor Capital Group are evenly split between buy, hold and sell ratings.

Interested in more on Taylor Capital Group? See TheStreet Ratings' report card for this stock.

Wintrust Financial

Shares of Wintrust Financial ( WTFC) of Lake Forest, Ill., closed at $28.12 Wednesday, for a year-to-date decline of 14%.

FIG Partners analyst John Rodis upgraded his rating for Wintrust to "outperform" in November, saying that a pullback in the share price to $26.71 on Nov. 17, presented "an attractive buying opportunity for investors." The shares have climbed 5% since then, but Rodis's $33 price target still implies 17% upside from Wednesday's close.

The analyst's target is based a valuation of roughly 1.2 times estimated tangible book value going out one year, and "a low-teen P/E multiple to our forward EPS estimates," of $1.84 for 2012.

Rodis added that "While WTFC shares might not appear as inexpensive on a P/E bases (vs. some regional banks) we believe the trade-off with WTFC is one of a higher growth franchise at the expense of some near-term earnings power."

The shares trade for 0.9 times their Sept. 30 tangible book value of $32.11, according to SNL, and for 14 times the consensus 2012 EPS estimate of $2.06, among analysts polled by FactSet.

Out of 13 analysts covering Wintrust Financial, seven rate the shares a buy, while the remaining analysts all have neutral ratings.

Interested in more on Wintrust Financial? See TheStreet Ratings' report card for this stock.

FIG Partners analyst John Rodis initiated his coverage of First Midwest on Nov. 14 with an "Outperform" rating and 12-month price target of $11, calling the company "one of the premier Chicago-based franchises growing both organically and through strategic acquisitions," and saying that "at this point it appears credit costs have peaked and are starting to move lower," although provisions for loan loss reserves and therefore earnings "will remain lumpy from one quarter to the next."

Rodis added that First Midwest's Chicago franchise "would be hard to duplicate," and that although the company has been an active acquirer, it "would also be an ideal target for a larger institution looking to gain a presence in the Chicago market."

The analyst estimates that First Midwest will earn 60 cents a share in 2012 and 90 cents a share in 2013.

The shares trade for 1.1 times their Sept, 30 tangible book value of $9.10, according to SNL, and for 14 times the consensus 2012 EPS estimate of 71 cents, among analysts polled by FactSet.

Out of 11 analysts covering First Midwest Bancorp, six rate the shares a buy, while five have neutral ratings.

Interested in more on First Midwest Bancorp? See TheStreet Ratings' report card for this stock.

PrivateBancorp

Shares of PrivateBancorp ( PVTB) of Chicago closed at $10.74 Wednesday, for a year-to-date decline of 25%.

The company still owes $243.8 million in TARP money.

FIG Partners analyst Christopher Marinac rates the shares "Market Perform," with an $11 price target, saying in November that with the shares trading at a significant discount to book value, "investors are seemingly ignorant of the company's significant progress on credit risk grade improvements."

The analyst also said that "the company still requires additional capital to fund the repayment of TARP preferred but also permit external expansion of loan balances when economic conditions permit. A portion of this capital can be self -funded by retained earnings but likely additional shares must be considered at a future date in 2012 or 2013."

Marinac estimates that PrivateBancorp will earn 45 cents a share in 2012 and 69 cents a share in 2013.

The shares trade for 0.8 times their Sept, 30 tangible book value of $13.04, according to SNL, and for 17 times the consensus 2012 EPS estimate of 65 cents, among analysts polled by FactSet.

Out of 14 analysts covering PrivateBancorp, four rate the shares a buy, while the remaining analysts all have neutral ratings.

Interested in more on PrivateBancorp? See TheStreet Ratings' report card for this stock.

MB Financial

Shares of MB Financial ( MBFI) of Chicago closed at $17.07 Wednesday, declining just 1% year-to-date, for the best performance among this group of five Chicago-area banks.

The company owes $196 million in TARP money.

FIG Partners analyst Brian Martin rates MB Financial "Outperform," with a $21 price target, saying in late October after the company reported third-quarter net income available to common shareholders of $17.1 million, or 31 cents a share, that "while credit improvement and good cost controls were noted, revenues continued to slide." Martin expects the company to put "some of its excess liquidity to work," by extending "the duration of the bond book somewhat and increasing its exposure to municipals."

The analyst said that "importantly, originations are up and the commercial pipeline is increasing," which, along with a modest improvement in fee income and a decline in loan loss provisions would feed estimated EPS of $1.45 for 2012 and $1.70 in 2013. Martin's full-year EPS estimate for 2011 is 54 cents.

Martin said that "to truly end its participation in this credit cycle and reaffirm itself as a market leader, MBFI must repay TARP," and that his forecast "suggests no new capital is required."

The shares trade for 1.2 times their Sept, 30 tangible book value of $13.78, according to SNL, and for 12 times the consensus 2012 EPS estimate of $1.46 cents, among analysts polled by FactSet.

Interested in more on MB Financial? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 5 Chicago Banks portfolio on Stockpickr.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.